Experts says ECB could resume rate cutting in medium term

(MENAFN) Analysts suggest that the European Central Bank (ECB) has largely concluded its cycle of interest rate cuts, but there is a growing possibility of rate increases in the medium term. While the bank is widely expected to maintain current policy rates at its December meeting, the discussion around potential hikes has gained attention in recent weeks.

Recent economic data from the eurozone show stronger-than-expected growth and rising inflationary pressures, reinforcing the view among policymakers that the ECB’s current monetary stance remains appropriate. ECB board member Isabel Schnabel has hinted that the bank may be considering a rate increase rather than additional cuts, according to reports.

Senior macro strategist Bas van Geffen projects “a few gradual hikes in early 2027” once the eurozone economy gathers momentum. He expects two increases in March and June of 2027 but believes there is no reason for a policy shift at the upcoming December meeting. Van Geffen noted that the ECB might adjust its economic projections while keeping rates on hold, saying, “This may revive some rate cut expectations, but we don’t believe this warrants further easing.”

He also expects ECB President Christine Lagarde to maintain her cautious stance, highlighting that the bank will continue to monitor both upside and downside risks.

Commerzbank economist Marco Wagner observed that Schnabel appears comfortable with the idea of future rate hikes, citing upside risks to growth and inflation. However, he noted that ECB forecasts indicate inflation could fall below the 2% target in 2026 and dip further in 2027, partly due to the postponement of the EU Emissions Trading System (ETS 2). This may argue against near-term hikes, Wagner explained.

Wagner’s outlook foresees interest rates remaining at their current levels over the next two years, though he emphasized that medium-term developments, including fiscal policies and defense spending across the eurozone, could create conditions for eventual increases.

Overall, while immediate policy changes appear unlikely, experts suggest that the ECB may pivot toward rate hikes in the medium term if inflationary pressures rise.

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